Loan Draw Process Flashcards
A developer usually needs to meet several milestones in a project to begin a construction draw from the bank.
Usually milestone would be pre-sale status (condo), equity contribution, partial building permit.
If there is an existing land loan, the first loan usually includes work done up to date and equity so that it pays off all previous loan on the land.
Typically a developer is required to (with the help from GC) fix at least 67% of the construction contracts.
A quantity surveyor reviews all plans, contracts, work up to date, permits, and issue a QS report for the bank to release funds.
FIRST LOAN DRAW
Loan draw conditions
DEVELOPMENT
MARKETING
OTHER
Development (Loan draw conditions)
PERMITS (STAGED BP)
ENVIRONMENTAL CLEARANCE
GEOTECHNICAL FULL REPORT
RELIANCE LETTERS ISSUED BY THE CONSULTANTS, ADDRESSED TO THE LENDER
Marketing (Loan draw conditions)
PRE-SALE TARGET ( PRE-SALE NEEDS TO COVER THE LOAN VALUE)
Ex. If the construction loan is $100M, the pre-sale value needs to cover at least $100M
PRE-SALE DEPOSIT TARGET (AGREED BY THE LENDER AND PRE-SALE INSURANCE COMPANY)
Other (Loan draw conditions)
SUFFICIENT EQUITY HAS BEEN CONTRIBUTED TO THE PROJECT
PROJECT TAXES PAID
PROJECT INSURANCE IN PLACE
QUANTITY SURVEYOR VERIFY ALL COSTS IN PLACE AND OR EQUITY IN PLACE.
Pre-sale condo equity stack.
SOURCE OF FUNDS
Equity injected into the project.
LAND EQUITY
CONSULTANTS FEE
MARKETING AND FINANCING
CITY PERMIT
Other loan conditions
LENDER NEEDS TO COMPLETE THE KYC PROCESS (KNOW YOUR CLIENT)
LENDER ISSUE COMMITMENT LETTER
LENDER AND BORROWER’S LAWYERS COMPLETE LEGAL BACKGROUND SEARCH, REGISTRATION OF SECURITY DOCUMENT, EXPRESS LEGAL OPINIONS ON LEGAL OWNERSHIP, AND ALL REQUIRED DOCUMENT SIGNING PROCESS.
LENDER DRAFT CLOSING STATEMENT TO FINALIZE THE EXACT AMOUNT OF LOAN FUNDING
LENDER TYPICALLY NEEDS 3-5 DAYS TO SECURE FUNDS TO BE ADVANCED.
KYC Process
BANK WILL PERFORM DUE DILIGENCE ON THE BORROWER’S BACKGROUND
GUARANTOR’S FINANCIAL STRENGTH WILL BE DETERMINED.
LEGAL ENTITY FORMATION, LEGAL AGREEMENT, TRUST DECLARATION, AND ALL OTHER AGREEMENT WILL BE REVIEWED.
Subsequent draw process
EACH MONTH, GC ISSUES ITS PROGRESS BILL TO A DEVELOPER. THE DEVELOPER RECORDS THE TOTAL INTO HARD COSTS. IT ALSO INCURS SOFT COSTS SUCH AS CONSULTANTS AND INTEREST.
THE DEVELOPER SENDS ALL DRAW INFORMATION AND BACKUP (INCLUDING INVOICES, COMMITMENT REPORT, BUDGET CHANGES) TO QUANTITY SURVEYOR.
QUANITY SURVEYOR VERIFIES THAT ALL COSTS ITEMS ARE WITHIN BUDGET, AS WELL ALL THE WORK HAS HAPPENED AND CAN BE VERIFIABLE.
QUANTITY SURVEYOR WOULD REQUEST AND RECOMMEND FUNDS FROM THE BANK.
BOTH THE GC AND THE DEVELOPER NEEDS TO SIGN STAT DEC TO REQUEST FUNDS, AND DECLARE THAT ALL PREVIOUSLY FUNDED AMOUNT HAS BEEN PAID TO TRADES.
Timing of loan draw
BEFORE 10TH OF THE MONTH - A DEVELOPER SENDS ITS DRAW REQUEST PACKAGE TO QUANTITY SURVEYOR.
BEFORE 15TH OF THE MONTH -THE QS WILL REVIEW AND ISSUE THE REPORT TO THE BANK.
AROUND 17TH OF THE MONTH - STAT DECS WILL BE SIGNED ON.
25-27TH - TYPICALLY BANK FUNDS AFTER RECEIVING THE REQUEST WITHIN 3 DAYS
31ST OF EACH MONTH - DEVELOPERS PAYS GC
31ST OR 1ST - GC RELEASES PAYMENTS TO TRADES AND SUBTRADES
Architect (Sign off plans and COP)
PROVIDE DRAWINGS AND COORDINATE ALL DRAWINGS SETS.
SIGN OFF ON COP PRIOR TO EACH DRAW.
PERFORM SITE VISITS AND SIGN OFF ON THE PROJECT PROGRESS
Appraiser
PROVIDE INITIAL LAND VALUE ASSESSMENT.
PROVIDE A TRANSMITTAL LETTER SO THAT BANKS CAN RELY ON THE REPORTS DIRECTLY.
Insurance broker
PROVIDE AN INSURANCE CERTIFICATE TO ENSURE THAT THERE IS SUFFICIENT INSURANCE PLACED ON THE PROJECT.
INCLUDE BANKS AS ADDITIONAL INSURED / FIRST MORTGAGE / AND LOSS PAYABLE TO PARTY.
Quantity Surveyor (QS)
HIRED BY THE LENDER AND IS TO VERIFY COSTS IN PLACE OF THE PROJECT ON BEHALF OF THE LENDER.
VERIFY BUDGET.
VERIFY EQUITY INJECTION IN THE PROJECT.
VERIFY PROGRESS ON THE PROJECT.
VERIFY COSTS HAVE BEEN PAID (SELECT INVOICES AND VERIFY PAYMENTS)
VERIFY COST OVERRUN AND INFORM THE LENDER.
VERIFY DEPOSIT IN TRUST.
VERIFY FUNDING AMOUNT AND PORTION FROM DEPOSIT AND CONSTRUCTION LOAN.
